Cyber ILS market set for future growth
Cyber ILS could expand if traditional reinsurance capacity tightens, according to a recent S&P rating agency report that tracks the market’s evolution.
Current market activity shows limited new issuance
In 2026, cyber catastrophe bond activity has been muted, with only a single new bond issued to date. The lone issuance this year follows the March renewal of a parametric cloud‑outage bond by German reinsurer Hannover Re. That renewal, labeled Cumulus Re (Series 2026‑1), secured $35 million of retrocessional protection for cloud‑outage events.
The bond marks the third consecutive renewal of Hannover Re’s Cumulus Re program, and each iteration has grown in size. Established sponsors such as Beazley, Chubb and Hannover Re renewed existing ILS in 2025 and 2026, while no new cedents entered the market and firms like AXIS and Swiss Re did not renew their publicly placed cyber‑ILS structures.
Investor confidence is growing despite limited supply
S&P says the cyber‑ILS investor base is slowly broadening as confidence in the asset class rises. Cyber risk remains a relatively untapped peril, which can command higher premiums than more familiar natural catastrophe bonds. Improvements in cyber risk modelling allow investors to better assess risk and gauge the risk‑return profile.
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Nevertheless, uncertainty around tail risk keeps investors cautious. The report also flags the risk of locked‑up collateral, noting that cyber loss claims may develop slowly after an incident is reported, potentially delaying capital redeployment.
Investors tend to favor structures that cover extreme, remote events through per‑occurrence excess‑of‑loss coverage, rather than policies that address smaller, frequent cyber losses.
Data from Artemis shows cyber catastrophe bonds make up just 1.3 % of the total catastrophe bond and ILS market. Since the first issuance in 2023, the share of new cyber bonds has fallen to 0.19 % of issuance year‑to‑date in 2026, a decline driven partly by stronger demand for natural‑catastrophe ILS.
“While this decline may suggest a challenging market environment, the trend is primarily driven by limited need for (re)insurers to tap alternative capital rather than limited investor appetite,” the analysis explains. Ample traditional reinsurance capacity, soft pricing and solid profitability in the cyber insurance sector reduce the incentive for insurers to turn to capital markets.
Despite modest issuance, the bonds continue to serve a strategic purpose. They are not meant to replace traditional reinsurance for routine losses but to provide targeted protection against large‑scale cyber events, transferring tail risk to institutional capital pools. The Cumulus Re series illustrates how such bonds can be tailored for specific exposures like cloud‑outage risk.
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Two possible paths lie ahead. The first envisions a gradual repricing of cyber risk within primary insurance, maintaining current structures and keeping traditional reinsurance widely available. In this scenario, cyber‑ILS would remain a complementary tool rather than a primary source of risk transfer.
The second scenario is more dynamic. If loss growth outpaces pricing adjustments, underwriting profitability could be pressured, prompting insurers to use traditional reinsurance more selectively. In that setting, cyber‑ILS could become increasingly attractive, not because conventional capacity disappears, but because alternative capital offers scalable protection when markets tighten.
Historically, when traditional reinsurance markets have faced capacity constraints—such as after major natural catastrophes—capital‑market solutions have stepped in to fill the gap. The current trajectory suggests a similar pattern could emerge for cyber risk, though the timing depends on how underwriting profitability evolves.
S&P concludes that scenario one appears more likely, noting a slowdown in the decline of U.S. cyber insurance rates. This deceleration hints at better pricing discipline and stricter underwriting, which may preserve existing reinsurance structures. Still, the analysis cautions that scenario two cannot be ruled out if competitive pressures revive, potentially driving insurers to rely more on cyber‑ILS for risk management.
